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Potential Changes on the Skilled Nursing Facility Medicare Payment Horizon

March 19, 2015

Monica Motta, CPA

A report was issued in January 2015, jointly produced by the Medicare Payment Advisory Commission (MedPAC) and the Urban Institute. MedPAC is an independent congressional agency established by the Balanced Budget Act of 1997 (P.L. 105-33) to advise the U.S. Congress on issues affecting the Medicare program.

According to the study, well-documented shortcomings in the design of Medicare’s payment system for skilled nursing facilities (SNFs) have prompted the Centers for Medicare and Medicaid Services (CMS) to make many revisions to the payment system, including shifting payments from therapy care towards nursing care. These revisions are evidenced by the changes to the Resource Utilizations Group (RUG) categories that the industry has experienced since the implementation of the Prospective Payment System in 1999.

This study compares the relationship between SNF payments from Medicare and costs over time to assess whether changes CMS has made to the payment system have improved payment accuracy for therapy and non-therapy ancillary (NTA) services.

While this study cites many statistics derived from skilled nursing claims information, patient assessments and cost report data filed by the skilled nursing community, it is this study’s conclusion that “Payments for therapy services are tied to the amount of therapy provided rather than patient need and generally overpay facilities for the costs of those services. Payments for non-therapy ancillary (NTA) services do not vary with these services’ costs or a patient’s need for the services. As a result, SNFs face incentives to shift their patient mix toward intensive therapy case-mix groups by providing unnecessary therapy services.” (Carter, Garrett, & Wissoker, 2015, p. 1). In addition, they have determined that “between 2006 and 2014, payment accuracy for therapy and NTA has steadily eroded.” (Carter et al., 2015, p.1). “Current policies continue to advantage facilities that predominantly admit patients with rehabilitation care needs and poorly target payments for NTA services.” (Carter et al., 2015, p.1). 

According to the study, the overpayments to facilities with above-average therapy provision are likely to be driving the growth in the share of days assigned to a therapy case mix group and, within those, to the most intensive therapy group. The Office of the Inspector General found that, increasingly, SNFs billed Medicare for more intensive therapy case-mix groups even though beneficiaries’ ages and diagnoses had not changed much (OIG 2011, OIG 2012). In addition, MedPAC concluded that changes in the frailty of beneficiaries and shorter hospital stays do not support the increasing intensity of therapy provision (MedPAC 2014). Under the False Claims Act, the Department of Justice has increasingly focused its attention on companies providing therapy services for failing to ensure that services furnished were necessary (Department of Justice 2014).

As evidenced by the PEPPER reports,, we in New England have a greater share of the therapy related diagnosis payments than those in the rest of the United States. This study recommends that CMS should adopt an alternative design as quickly as possible.

The alternative design to the current SNF payment systems would establish a separate component for NTA services. This would have the effect of moving dollars from therapy payment categories to non-therapy payment categories.

According to the study, a facility’s mix of case-mix groups affects its financial performance under Medicare payments. Using a measure that compares Medicare costs to Medicare payments, MedPAC found that, in 2012, freestanding facilities with the highest shares (top 10th percentile) of days assigned to the ultra-high and very-high therapy case mix groups have far higher Medicare margins compared to facilities with the lowest shares (bottom 10% percentile of these days, 16 percent versus 2.3 percent). 

The study further concludes that the present payment system continues to encourage providers to furnish clinically unnecessary services for financial gain. With a number of providers experimenting with various payment reform models, accuracy should remain a central concern since bundled payment and Accountable Care Organization (ACO) reforms continue to rely on fee-for-service payments.

Facilities have been subsidizing their Medicaid shortfall with Medicare “profits” for years, leaving very thin margins for a return on investment.  A decrease in the Medicare margin of 5% is estimated to reduce Medicare funding in Rhode Island by approximately $5.3 million, Massachusetts by approximately $42.8 million and Connecticut by approximately $27 million. 

BlumShapiro follows Medicaid and Medicare regulations on an ongoing basis. Updates will be provided as this Medicare payment alternative unfolds.

As a partner and head of BlumShapiro’s Rhode Island Healthcare Department, Monica works with both for-profit and non-profit healthcare organizations, including skilled nursing facilities, home health agencies and long-term care facilities. BlumShapiro is the largest regional accounting, tax and business consulting firm based in New England, with offices in Connecticut, Massachusetts and Rhode Island. In addition, BlumShapiro provides a variety of specialized consulting services such as succession and estate planning, business technology services, employee benefit plan audits, litigation support and valuation, and financial staffing. The firm serves a wide range of privately held companies, government and non-profit organizations and provides non-audit services for publicly traded companies.


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